The Ecquire Blog

PayPal Working Capital – b12 for B2B Saas Companies

Series A conversations for early B2B SaaS companies sound like;

“100k in MRR?”

“Umm… Well..No… Not yet…but…”

“Ok reach back out when you’re at 100k.”

(Internal thought – “GFY”)

Monthly Recurring Revenue (MRR) is the quickest benchmark for a valuation and/or decision to invest in a B2B SaaS companies. For early B2B SaaS companies no man’s land is when there’s revenue but not enough to get venture funding or to hire your next team member.

Because we’ve had to initially – and now because we want to – we are going to do our fourth PayPal Working capital loan. Because of increased sales over each month, the sizes of the amounts we’ve been granted have gone from $7,000 to $28,000.

Here’s exactly what screen you’re at within 2 minutes of the loan process:

Here’s how the payback period and interest rates change based on what you choose:

What I love about this is many things, but mostly there’s no relationship or politicking I need to do. I don’t have to go to VCs, Angels or local banks explaining to them what the internet is. We get a working capital loan based on our history and strength of sales. It’s fair and helps us grow quickly.

I really hate Paypal and it pains me to give them credit for this but I think it’s brilliant on their behalf.

As my CTO pointed out to me, he’s happy to loan us money at 13% but you can see in a few chat lines how we’ve internalized that the next money we take is going to be from Paypal working capital.

Luc: I think Paypal’s solution is mid way between proper financing and a shark loan…

Paul: I can see how you see that but the cost for me to spend my time to draft up terms from the lawyer and search for a lender is much more than the one click I have to make to get this money. It’s also better than a convertible note and cheaper than equity.

It’s simple to evaluate with your team. If you can generate enough incremental revenue from the loan to cover the cost of the loan you can keep doing this to grow your business.

Two additional things to keep in mind:

If you choose the option to pay back paypal with 30% of your daily sales (this will get you the cheapest loan fee), you’ll still see cash coming in to the bank from daily sales so you’ll have a propensity to think you can spend more than you actually can. Consider that you need to have enough cash on hand, or be able to create enough in sales within 30 days, to refund your largest contracts that come in from new sales if there’s an issue.

Mind your CAC: If you know that for each dollar spent you are generating $1.23 by the time you need to pay it back, it makes sense to get the money at the cost of 22%.